Logistics has long been hailed as the lifeblood of the economy. Imports and exports via air, sea and road freight the volume of which all reflect on how well, or not, the economy is faring. Using the industry as a barometer to predict the rise and fall of the UK market is a measure Hellmann Worldwide Logistics is using to predict future economic performance. Here, Matthew Marriott, Hellmann's Commercial Director, explains why, and how he sees logistics as a gauge that is only going to become more accurate.
As an industry the logistics sector has faced its share of trials and tribulations over the last few years and, with the recent news of the potential addition of a new aviation tax, this doesn't appear to be anything that is going to change in the immediate future. This, alongside the growth of the trade deficit to 3.8 billion in May  in goods and services, and the rise of exports by less than 0.1 billion, compared to the rise of imports by 0.7 billion according to the Office for National Statistics indicates that we have a long way to go to change the economic business model towards a balanced economy that does not just rely on the service and finance sectors.
The logistics industry tends to feel tremors or even major movements in the economy first when it comes to consumer spending and manufacturing output. This may be because it has a real handle on exports versus imports or the fact that the industry is the first to feel the effects of consumer and retail spending due to demand swiftly feeding through to the movement of goods. Currently exports are a particular concern, with the potential of a knock-on effect of lower exports and greater imports leading to another unhealthy shift into negative figures for the UK economy. We have seen a drop in volumes in June which reflects the factory output statistics recently issued where we saw a 0.4% drop over the previous year. This again shows the trend value of airfreight against government statistics and how airfreight could potentially be used more as a quick barometer for the economy on certain statistical topics and audit checks.
The international market still has the upper hand on UK manufacturing and this is something the new government is keen to combat by increasing levels of manufacturing in the UK rather than putting the onus on financial services, we may begin to see a lesser distinction between import and export volumes in the future. This depends on the strategy of the UK Coalition government's success in changing the attitude within the UK towards investing in manufacturing locally. We have proven time and time again that when we invest in manufacturing we can be world leaders. It's a shame that the majority of manufacturing excellence is based in foreign hands but with the "new focus" from our Coalition government we could see an improvement in UK based investments in manufacturing and thus a shift in the balance of payments.
The heart of the UK economy
The airport infrastructure lies at the heart of the UK economy when we face a crisis such as the volcanic explosion this becomes even more apparent. Although we can't be certain about the implications of a new tax to the airfreight industry, airlines operating fewer flights and the impact on airfreight forwarding to the logistics and manufacturing industries are a real concern. If this 'per-plane tax' were to take shape, I would imagine a dip in the UK transportation industry due to penalising airfreight that flies via the UK en route to their final destination. Excluding the UK (especially Heathrow) from a fiercely competitive market and damaging the supply chain of goods needed to help the economy thrive again is risky.
It wouldn't, however, have an immediate impact on the consumer, as it can take a while to feel the knock-on effects. For example, the increase in the trade deficit in January of this year recorded by the Office for National Statistics may account for the increase in exports recorded towards the end of the first quarter. Going back to the Icelandic volcano explosion in April, it was the logistics industry that felt the immediate effects but this obviously impacted most seriously on airfreight and the travel sector. It proved the fragility of the global supply chain and how quickly the UK can be cut off from other countries without a great deal of impact to them. Hellmann's Gross Profit was down 5% that month, a result that was, and still is to an extent, mirrored across the economy.
In terms of how logistics and the economy can be related, the international transport industry first needs to be split into two these being airfreight and oceanfreight. The airfreight market is the first market to decline in a recession and has the highest spend ratio area to the landed value of products exported or imported. During recessions, the financial situation for companies means that airfreight costs are the first to be cut in a bid to reduce supply chain costs, which naturally has a positive effect on your operating costs in the short term.
In the first 4 months of 2010 Hellmann has seen a surge in import airfreight and export airfreight and I believe this is a reflection on the industry as a whole. In June, however, we saw a softening in tonnages, especially in exports, which is indicative of the recent factory output results and a slight reduction in UK production levels, hence supporting the argument that transportation activity can be used as a barometer for the economy. Airlines have also reported lower aircraft utilisation (reduced Cargo) than previous months on exports which suggests activity is slowing down in some regions of the world.
TEU (Seafreight Containers) volume movements
Oceanfreight, on the other hand, is a different story. This is where commodity volumes come into play. The Lines have made very heavy losses in the last couple of years due to asset costs versus revenue and the general market so they have created a market that has lower capacity through parking ships and have raised the cost of transportation through capacity shortages. This had to happen due to the economic situation they found themselves in. The seafreight market is above last year's TEU volume movements and again shows the market in the UK has picked up since the beginning of the year.
Airfreight is the first product to see the negatives and positives of the market as it is the fastest form of transportation. The question for us all is, if the airfreight market softens first, like it has done on exports in June and July, will the oceanfreight market follow? This is yet to be seen this year. Another question is whether this is a reflection of the confidence of manufacturing companies or just the general uncertainty in the world markets.
Evaluating Hellmann's airfreight figures, compared to those from 2008 and 2009, we have seen:
Airfreight tonnage increase from 2009-2010 by 30.6% in actual weight (27.9% in chargeable weight)
Airfreight export gateway tonnage increase 25% on 2008, and 59% on 2009
Shipment consignments increase by 9% between 2008 and 2009, and 14% between 2009 and 2010
These figures, you would have thought, would be a positive sign for the economy, and that would have been the case until recently when activity has started to plateau. Let's take a look at factory output reports and how they can support this in terms of factory order growth.
The decline in factory output levels
In China especially, a powerhouse in terms of manufacturing, a slowing down in the pace of growth in factory activity has been recorded. The general picture of growing weakness in China was broadly supported by the official index, which reported falls in the sub indices for new export orders, backlogs of work, imports and employment which is, according to China's National Bureau of Statistics, reflective of "the impact of tighter government policies and a weakening of the global recovery." 
The UK is in similar turmoil, with orders at Britain's factories falling to the lowest level in almost 17 years  according to The Telegraph. The fact that the trade deficit has continued to grow despite the weak state of the pound is concerning due to recent increases in the value of it compared to the US Dollar and Euro - this mirrors the decline in demand for UK goods abroad.
GDP data follows a similar trend. GDP grew by 0.2% between January and March this year , the last quarter of 2009 saw GDP growth of 0.4%, and manufacturing output grew by 0.7% over the quarter. The second quarter isn't looking quite so positive, with factory output in the US falling by 0.4% in June, the biggest fall in a year despite all time high results in April, leading to a fall in Asian stocks,  according to Bloomberg. This softening towards the end of June might reflect a drop in export airfreight tonnages in the same period but this is yet to be officially recorded.
Hellmann started showing signs of growth, most notably within airfreight, mid January 2010, representing a higher volume of exports leaving the UK, seeing the first quarter of 2010 as one of the strongest quarterly performances in terms of production yet. The second quarter started steadily and maintained this pace before a slight dip at the end of June and then a plateau in July, and this has been mirrored across the airfreight industry. Having been in the sector for 22 years and, potentially a little over cautious, what I have seen over the last few months makes me believe we could potentially enter into a "stagnated" economic period whereby the deficit cutting verses the private sector economic growth equals a slowing down in growth or even zero growth for a short period, hence if our Government makes the wrong decision we could see negative growth in the UK.
The ability to plan for future economic performance should not be overlooked. Dips in the economy can be used as periods to reflect on the service provided by businesses to ensure that levels of operational excellence and uncompromised customer service are the norm. Peaks are the periods to then capitalise on these relationships and keep the economy flourishing.
 Source: Office for National Statistics
 Source: The Financial Times
 Source: The Telegraph
 Source: BBC News
 Source: Bloomberg